Average gasoline price in the US is $4.49 per gallon or $1.08 per litre. On-highway diesel price is $5.06 per gallon or $1.11 per litre. These convert at a rate of Rs204 per dollar to Rs220 and Rs226 per litre, respectively. These high oil rates are primarily the result of the Ukraine war causing unprecedented supply disruptions. Due to these reasons, supply shortages have caused oil prices to increase from nearly $98 per barrel, pre-war, to about $117 per barrel now.
In percentage terms, the oil rates have increased by about 20% since February up to June 2020. Nearly 26.5% of Pakistan imports consist of petroleum products. Thus unless the Ukraine war subsides or ends and pre-war supply levels restart, one should get used to a period of high oil prices. The Rs2,000 subsidy for those using motorcycles is a correct ameliorative decision provided it is properly executed.
There is no room for moralising or political point-scoring on a factual international development that is affecting all oil importing countries. Bickering and blame-gaming will not decrease world oil prices and will only add to confusion and polarisation that is already in surfeit supply. Criticism of the present government on this score cannot but be regarded as empty hollering, particularly given the fact that any other government would’ve had to face the same predicament.
The moral position of leaders of the previous government lashing out at the present setup is all the more untenable when one recounts that it reneged on its agreement with IMF to raise oil prices by Rs4 every month until the prices are increased by Rs30 per litre by June 2020 and instead slipped in a reduction of Rs10 per litre without a verifiable source available to avoid an increment in the budgetary deficit. That policy turnaround resulted in IMF putting its second tranche on hold fuelling speculative downward spiral of the rupee against the dollar.
The Russian ambassador’s denial in a TV interview of existence of any deal between the PTI government and Russia about sale of oil at 30% lower price to Pakistan doesn’t help either, although the talks towards that end should be pursued with as much alacrity as possible. President Joe Biden has ordered scrutiny by administration agencies whether the oil refineries are resorting to ‘price gouging’ or charging inflated profit margins. A similar regulatory study wouldn’t be out of place in Pakistan as well. A review of the profit margins of OMCs is also warranted. While both would be proper actions by government to protect the consumer from overcharging, it is essential not to act overzealously to avoid disturbing supplies. It would also be proper to keep in mind that the real reason for higher oil prices are due to the supply-demand imbalances caused by the Ukraine war.
In our case, the PTI government’s failure to continue with the very wise policy of the government it succeeded in entering into long-term LNG agreements when LNG costs were on the lower side, has added to the fuel crisis we face today. Shortage of LNG supplies, whose spot costs are soaring in the world market due to oil shortages, is causing power plants not being able to run at capacity resulting in the prolonged power outages. Besides the contribution shortage of LNG is making towards the other serious problem of circular debt also could’ve been alleviated if profitable long-term contracts had not been discontinued on the spacious grounds that the deals made by the previous government were based upon unproven dubious underhand deals. Politics once again stumping the economy and national interests.
How playing politics with economics for self-centred, short-term presumed gains ultimately harms and brings pain to the masses, if only the policymakers could understand and appreciate. But the reply normally from those who plan and make policies is: but we are after all not angels. But not being angels at what social costs?
The central tenet of democracy subsists in the principle and belief that governments are run not by angels but by fallible humans who possess a great predilection towards laziness, error or sheer stupidity. That is why democracy provides safety valves of changing those who govern through means of peaceful power transfer whenever those entrusted by the electorate to safeguard their interests fail to deliver.
Published in The Express Tribune, June 22nd, 2022.
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